Question

Data show that an average Canadian and American citizen hold CA$2000 and US$4000 of their currency respectively. Since money is bulky, it can be stolen, pays no interest and in general we do not see our fellow Canadians holding $2000 in their pockets, where are these dollars and who is holding them?

Answer 1

Citizens hold liquid money in numbers of form not only in currency. Infact in other forms money can give return as well. WHen we say an Amercan has $4000 it does not neccessarily implies that this amount is in currency (notes or coins) but could have been stored in saving or deposit accounts. SUch accounts are liquid that is the American can withdraw cash from it whenever required or can even made apyment through electronic means. Keeping such money in accountd also give returns in form of interest. The other forms which are less liquid include treasury bills, quick bonds etc.

When citizens deposit their owned money in their saviing/deposit accounts then banks get authority to it until it is withdrawn of citizen's creeed. Banks then make loans from such deposits after keeping a reserve from it to meet daiily customer request of withdrawl. Thus it could be s aid that banks and financial institutions generally hold such money for the citizens.